Microsoft Loses Final Appeal in $290 Million Patent Case

The Supreme Court on Thursday unanimously upheld a $290 million award against Microsoft in a patent dispute.

Source: Microsoft.com

Microsoft Office 2010

The case was brought by a Canadian software company, i4i Limited Partnership, which said a version of Microsoft Word had infringed its patented method for editing documents. At the trial, the jury rejected Microsoft’s argument that the patent was invalid.

Before the Supreme Court, Microsoft said the trial court had subjected its invalidity defense to an overly demanding standard.

Microsoft had been required to prove its defense by clear and convincing evidence, and the company said it should have only needed to meet the more relaxed standard of a preponderance of the evidence. Under that standard, Microsoft would have had to prove only that it was more likely than not that the patent was invalid.

The question in the case (Microsoft Corporation v. i4i Limited Partnership, No. 10-290) was what Congress meant on that point in the Patent Act of 1952, which said only that patents are “presumed valid” and that “the burden of establishing invalidity” rests “on the party asserting such invalidity.”

Though the law did not expressly specify a standard of proof, Justice Sonia Sotomayor, writing for the court, said Congress must have codified the general understanding about the appropriate standard, one reflected in a 1934 Supreme Court decision.

The presumption that patents were valid, Justice Benjamin N. Cardozo wrote, was “not to be overthrown except by clear and cogent evidence.”

The Canadian firm’s patent was for a method of editing computer documents that stored the contents of documents separately from codes for their structure. In 2007, it sued Microsoft, arguing that Microsoft Word had infringed the patent.

Microsoft said the patent was invalid under a provision of the patent laws that bars protection for inventions that had been on sale in the United States for more than a year before the patent application was filed.

The Canadian firm had sold another software program more than a year before it submitted its application, and the patent examiner had not considered whether the older program contained the main innovation in the later one before issuing the patent.

Though the Supreme Court rejected the argument that the more lenient preponderance standard should apply across the board in invalidity challenges, it was more sympathetic to Microsoft’s fallback position.

The company argued that the lower standard should at least apply where the factual question in dispute had not been considered before the patent was issued. Here the court sketched out a roadmap for future defendants seeking to assert an invalidity defense in similar circumstances.

Though courts should continue to require “clear and convincing” evidence of invalidity in name, Justice Sotomayor wrote, the decision to issue a patent “may lose significant force” where the patent office “did not have all material facts before it.”

That means, she continued, that “the challenger’s burden to persuade the jury of its invalidity defense by clear and convincing evidence may be easier to sustain.” Jury instructions, Justice Sotomayor said, may take account of these points.

In a concurrence, Justice Stephen G. Breyer suggested additional limitations. The requirement of clear and convincing proof, he wrote, applies only to factual questions typically decided by juries, such as when a product was first sold.

Legal questions decided by judges, on the other hand, are not subject to the standard. Among such legal questions, he wrote, are whether inventions are novel or obvious.

Chief Justice John G. Roberts Jr. did not participate in the case. In a financial disclosure form issued last month, the chief justice reported that his family owned $100,000 to $250,000 in Microsoft shares last year.